The agency owner’s job is to ensure the agency doesn’t run out of money. A big mistake I’ve seen agency owners make; is when they land a big client, they start spending more without proper planning. Be it hiring additional VAs, getting annual subscriptions of software, upgrading the office, building a bigger sales team, working with more vendors, getting a new car on lease, etc. While these are important, it is more important to maintain a balance.
The first step is to have your eyes on cash coming in vs going out. I will discuss the most important steps here below:
Basics
Get accounting software, if you aren’t using one already.
If you’re already using accounting software and keep it up to date, you can move to the next section.
This is the most underrated advice to agency owners. But you’ll be surprised, how many owners are paying bills blindly. By the time most agency owners come to me (which is like 6 months or a year), I can only do a post-mortem of their finances.
You need to have a laser-sharp view of your expenses. You should never pay a bill blindly without budgeting it for your monthly expenses.
Most modern accounting software does half the job of tracking expenses for you. All you’ll have to do is connect the bank accounts and let it import transactions.
You will only have to tell the software – what the purpose of a transaction was. It’ll do the rest.
Weekly Planning
This exercise will be hard and painful at first. But rewarding in the long run. Kind of like a gym.
Each Friday, go through your list of customers. Estimate who will be paying you over the coming week. That is going to be your money coming in.
Next, estimate who you’ll be paying over the next week. Be it VA’s, Vendors, Subscriptions, Yourself. All money going out must be recorded.
Here’s how to do it:
Create a list of clients that are expected to pay during the upcoming week:
Client 1 – $450
Client 2 – $550
Total – $1,000
Create a list of all upcoming expenses:
Virtual Assistant – $200
Software subscriptions coming due – $150
Vendor payments – $300
Your salary/distribution – $300
Total – $850
Now during the upcoming week – you only have a margin of $1000 (incoming) – $850 (outgoing) = $150. That is if everything goes according to plan.
If even one of the customers in the example above doesn’t pay during the week or you get a surprise bill, it’ll throw off your calculations.
That is exactly what we are aiming to do here. The goal is to make you plan ahead instead of paying bills blindly. You need to be aware of how every upcoming week is looking like so you don’t run out of money.
If one of your clients doesn’t pay then the only option you have is to stop paying expenses. And I can bet you can spot the first expense you will be holding off on until you have the funds – your personal salary.
Here’s how to avoid this situation:
- Store water when it rains to use it in a drought. (Set money aside on the good days)
You need to build a cash reserve. Ideally, it should be equivalent to 2-3 months of expenses. You don’t end up setting aside that kind of money on the first day. Start stashing as much as you can. You need to get into the habit of doing this.
Create a separate bank account. Start transferring funds to the account whenever you have room to do so. And don’t touch that money unless you have to. This is for emergencies only. This will be your last line of defense should you run out of cash.
- Have a line of credit in place – (Not recommended – but in case of emergency).
If you’ve done step 1 well, it wouldn’t and shouldn’t come to this. But if things go out of hand – you can use this to survive. This is a double-edged sword though. If you do not fix your cash woes, you’re going to not only be out of cash but in debt as well.
- Use your credit card for any online purchasing – this will give you some room. Especially in agencies that have more clients maturing at a particular time of the month. Let’s say all your clients pay you by the 5th. From the 6th to the 30th you have to use that cash only. This will give you a cushion and some points. Do not delay your payments though.
Long term fixes
- Evaluate every client
Not all clients are equal. Some pay more than others, some take less time and effort than others. If your team is billing you by the hour. You need to know where they are spending most of their time. You’ll be surprised how many clients would be in the red. Re-negotiate with those clients. Most owners are afraid to re-negotiate but good clients listen to you with an open mind. If a client is in the red and re-negotiations aren’t going anywhere then it is better to drop them. You’re not in business to make a loss.
- Budgeting
Every expense that you have is from $1 to $1000s. Note them down. You need to be aware of your monthly overhead. If a big client cancels, you need to immediately make cuts. Most often, cash flow issues are due to poor planning and budgeting. Remember the time when you used to work out of your home office alone and you were able to set aside money? Most agency owners forget that once they build teams and systems. If clients churn, you need to churn your expenses as well. The goal is to not go negative for more than a month at any given time.
- Retain your clients
This kind of goes against what I said above. But no company was ever built by clients spending money one time only. A lot of agency owners focus so much on acquiring clients (because it is tough) that they don’t spend half that energy focusing on results for clients, customer service, etc. The biggest time and energy saver is to retain your existing clients – it costs 10 times as much to acquire a new client than to retain your existing ones. If your clients get the results they need through BI Consultancy Services, chances are their friends and family will ask them how they were able to grow all of a sudden. They will happily refer you and BI Consultancy Services to their networks if you keep your existing clients happy.
- If you’ve gone through this article so far and don’t see yourself following all the steps mentioned here because
- You don’t have the time
- You don’t have enough accounting knowledge (which can be acquired if you put time into it – but there’s a reason your clients don’t try to learn marketing on their own and hire you instead).
- You’d rather focus on growing the business, and getting more clients through the door than doing your books.
Work with a professional. Regardless if you work with us or not. You need to start focusing on your finances. I see agencies add millions to their ARRs only to lose it all a year or two later. You’re in business to make money and our job is to keep you in business doing exactly that. We have expertise in working with up to $5M agencies. Our team of experts offers a free consultation to assess your current financial position and plan for growth. You can schedule a free consultation today.
Also Read: Outsourcing vs In-House Bookkeeping
